Tuesday, October 11, 2011

As I finished the most recent report on floor covering industry statistics I wondered why hard surfaces sales are on the rise this year considering all the negative news about the economy and our industry's general condition.

One of the impost important trends in the US floor covering industry is the continuing increase of hard surface's share of overall floor covering. As of September 2011 hard surface had claimed an estimated 41.4% share which reflects a 10% increase in share over the past decade. Manufacturer sales (shipments minus exports plus imports) of hard surface flooring increased over the first three quarters of 2011, while carpet and rug sales declined. Dollar sales of hard surface flooring increased by an estimated 4.3% over the first three quarters and square foot sales could have risen by 1.9%. Meanwhile, we estimate that carpet and rug sales declined 0.7% and 5.0% respectively over the same period. These statistics are in our latest floor covering industry publication, the September issue of the Catalina Floor Coverings Quarterly Update.

Hard surface flooring has been taking share from carpet and rugs for over a decade. But what has caused had surface flooring sales to grow in 2011 when unemployment remained high, consumer confidence fell and the house market remained depressed?

Perhaps the most important factor driving hard surface flooring sales is its tie to the commercial market which is stronger than residential replacement which is where the majority of carpet is sold. In 2010, some 39.0% of hard surface flooring was sold for commercial applications compared to only 25.0% for carpet and rugs. Conversely, 65% of carpet and rug sales were sold for residential replacement and consumer spending for floor covering declined 3.6% in the first half of 2011. This hurt carpet sales. Only 41% of hard surface products flowed to residential replacement sales.

Another driver is that people are staying in their homes longer now. Since the housing "crash," housing turnover has slowed with declining home prices and tightened credit standards. These non-movers have increased their preference for longer-lasting flooring products creating a trend towards hard surface flooring. During 2011, some two-thirds of homeowner floor covering replacement jobs could utilize hard surface materials. This is up from about 60.0% in 2005 and only 52.0% in 2001.

3.Consumer preferences are turning to natural wood and stone looks.

The shift to hard surface also reflects the consumers' increasing preference for wood and stone looks. This gave a boost to the relatively high-priced wood and stone flooring prior to the recession. Currently, consumers are turning to ceramic tile and resilient flooring to satisfy their desire for wood and stone looks at lower prices. Ceramic tile manufacturers have expanded their lines of porcelain tile with stone looks and even introduced wood plank looks. At the same time, resilient flooring manufactures upgraded their product offerings with luxury vinyl planks and fiberglass backed sheet vinyl.

4.Carpet's price advantage is narrowing.

Finally, the price advantage of carpet has narrowed. We estimate that the average value per square foot (manufacturer prices) of hard surface flooring increased by 1.8% in the first three quarters of 2011 versus 4.5% for carpet and rugs. Hard surfaces flooring's average value per square foot sold is $1.14 while carpet and rugs is $0.92.

The sharper increase in carpet prices reflects stronger increases for material inputs. Carpet fiber prices increased by about 10.0% over the past year as oil prices rose while ceramic tile and wood flooring material costs have been flat. Even the resilient segment, which is highly dependent on oil-based plastic resins, saw only a 7.0% rise in material costs which translated to a 6.0% increase in resilient flooring prices. Despite this increase, resilient flooring remains the lowest cost flooring material on average (not installed).

These are four industry trends I uncovered in 2011. Are you seeing these trends play out in your business? Do you think there are other reasons for the growth in hard surface?

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